Company law revision question and answer

Hellen is the managing director of Artworks Ltd. and owns 60% of the shares in the company which distributes and sells works of art. Charles and Martin are the other directors holding between them 30% shares. Hellen is also a shareholder in Oilprojects Ltd., a company which produces oil paintings. In her capacity as managing director of Artworks Ltd., Hellen ordered Sh. 1 million worth of oil paintings from Oilprojects Ltd. and she was paid a commission of Sh. 500,000 Oilprojects Ltd.

Evaluate whether Artworks Ltd. has any claim against Hellen and state the remedies open to the company.
ANSWER
This problem is based on the fiduciary duties of directors which principally hinge on bonafide and avoiding conflict of interest.
• A fiduciary must not benefit virtue of his position without the other party‟s consent.
• Any secret profit made a fiduciary without disclosure must be accounted to the company and this rule applies.
• Even in the absence of bad faith on the part of the director. It was so held in
Regal (Hastings) Ltd. V. Gulliver.
• A director can retain the profit made only if the company passes a resolution in general meeting to that effect Cooks V. Deeks as long as it does not involve fraud on the minority.
• In this case Hellen, the managing director made a secret profit in her position as a fiduciary and is therefore liable to account to Artworks Ltd. As was the case in Boston Deep Sea Fishing V. Ansell whose facts were substantially similar where a director was held liable to account.
• The remedies open to the company include:
 Damages: for breach of her fiduciary duties.
 Account: for the secret profit.
 Rescission of contract.
 The company may seek a declaration that Hellen holds the amount of Kshs. 500,000 in trust for it.

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